First Solar’s new world record for solar cell efficiency and why it’s important

One of the important ways to make solar energy cheaper is to improve the amount of sunlight that solar cells can convert into electricity. So it’s a big deal to see that First Solar (s FSLR) announced on Tuesday that it’s managed to create a record 18.7 percent solar cell, up from the 17.3 percent cell it touted in July 2011.

That 18.7 percent sets a new world record for cells made from the material cadmium-telluride. It represents the best the company could achieve, but to make cells with that efficiency in mass production will likely take a few years.

Boosting the efficiency helps to reduce production costs of solar cells. Efficiency is correlated with how much power a panel of a given size can produce – more power means higher efficiencies. There is a fixed cost and amount of time for making each panel. If the company produces each panel with a higher power rating (in watts) for the same amount of time as it did before, then that panel’s cost-per-watt is lower.

For consumers, a solar panel with more efficient cells also means they won’t need as many solar panels to get the same amount of electricity. Or they could get more solar electricity with the same number of panels. That’s good news for those who have homes with a limited roof space or want to rely less on their utilities for power.

First Solar 18.7% cell

The Arizona company has long built its reputation as a low-cost manufacturer, but it has faced increasing competition from companies that have gotten better at reducing costs. Like First Solar, many of these rivals have built mega factories and developed their own or licensed technologies to cut costs.

A good number of these solar cell makers are based in China, and in recent years these Chinese companies also have gotten strong financial support from their national and local governments — as well as state-controlled banks — to become formidable players. But that help has gotten the Chinese manufacturers in trouble in the U.S. and Europe, where trade complaints have been filed to stop what their rivals say is unfair competition. The U.S. government started to impose tariffs on imported Chinese silicon solar cells last year after investigating such a trade dispute in 2011-2012.

With the new efficiency record, First Solar also wants to show that its material of choice, cadmium-telluride, is capable of squeezing more and more electricity from sunlight for years to come. Most of the solar cells made today actually use silicon, the same material for chips that run computers and mobile phones. But there has been a long-standing debate over when silicon and cadmium-telluride will be close to hitting the maximum efficiencies the materials can inherently produce.

Without switching to a new material — and spending lots of money to replace factory equipment — solar companies are looking at different ways to boost the efficiencies. One idea is to stack another layer of cells on top of the existing layer to induce chemical reactions that help to minimize the loss of electrons in the process of converting sunlight to energy. Figuring out new ways to boost silicon solar cell efficiency is one area where startups might still be able to attract venture capital, especially if the ideas involve licensing the technologies to big producers.

Many investors have shied away from putting money in startups that want to build factories to manufacture the technologies they have developed. Solar manufacturing technology has shown to take a lot more time and money to commercialize than some VCs have the appetite for, and investors haven’t seen enough success stories to want to place more bets.

When solar cells are assembled into a panel, the efficiency of the entire panel is typically a few percentage points lower than the cell efficiency. First Solar announced a 14.4 percent panel efficiency record about a year ago. But the panels that are rolling off its production lines en masse clocked in at an average of 12.9 percent as of the end of 2012, up 0.7 percentage point from 12.2 percent by the end of 2011.

The company also reported its fourth-quarter financial results on Tuesday. It posted $1.1 billion in sales for the quarter, up from $415 million in the fourth quarter of 2011. It generated $154.2 million in the quarterly net income, or $1.74 per share, compared with a net loss of $413.1 million, or $4.78 per share, from the year-ago period. For the entire 2012, First Solar took in $3.4 billion in sales, up 22 percent from 2011, but it recorded a net loss of $96.3 million, or $1.11 per share, for 2012.